Never before has there been a situation where we business travellers have been this uncertain about how much money we expect to spend on business trips. We ask industry leaders what they think your travel budgets should be for FY 2013.
“We expect 2012-13 to be a weak year for the domestic (hospitality) industry,” said Subrata Ray, group vice president and head of corporate ratings at ICRA (investment information and credit rating agency of India). While ICRA read out the writing on the wall with the revenue per available room (RevPARs) reducing by 5-8% during the first quarter, hoteliers believe that 2013 will be as challenging as the year gone by. However this means some relief for the business traveller.
With the rapid increase in room inventory as well hotel launches in Tier I and Tier II cities, the supply has exceeded the demand putting the average room rate of hotels under pressure. According to 2013 Global Forecast by carlsonwagonlit, hotel groups will offer rooms at a lower rate this year. “Each group is expected to offer some declining rates. This is due to the dramatic influx of new hotel construction as global brands expand their presence there; however, demand, albeit strong, does not appear to be keeping pace with supply, forcing hotels to lower rates to keep rooms full. India’s 4-5 crown properties are expected to be most impacted, with decreases in the 6-8% range, given the bulk of new hotels in that category.
The economic slowdown as well as increased competition amongst hotels are other reasons why hotels would offer competitive rates to travellers. A recent report talking about the Crisil Research suggests that economic slowdown will hit business and leisure travel. “The annual demand growth for hotel rooms will remaining subdued at around 7 percent in 2012-13 and 2013-14. This will be compounded by large-scale room additions: Crisil Research expects 14,500 rooms to be added in 2013-14 to the existing 46,200 rooms. As the increased room inventory intensifies competition and aggravates the demand-supply imbalance prevailing in the segment, room rates for premium hotels will dip by about 10 per cent over this period.”
Pranav Patel, GM of Alila Bangalore Hotel and Residence said, “All 5 star hotels will be looking to grab their fair share by competing against rates and making sure to keep the occupancy pumped at all times. Hence, hotels will have to constantly innovate and drive new trends to again satisfy the increased demand of corporate travellers. We are coming up with special long stay packages, special spouse programs for corporates travelling with their better halves, weekend getaway packages, Spa revitalizing programs at our luxury “Spa Alila” for corporate travellers etc.”
PK Mohankumar, Chief Operating Officer – Gateway Brand, Taj Hotels, said:
Keeping the macroeconomic scenario in mind, my view is that 2013 will be as much a challenge as 2012 has been. The hospitality industry is a lot more mature than what it was a decade ago. Any prediction will be based on the macroeconomic level. The Average Room Rates will be under pressure and the dependence on domestic market will grow.
New York city has more rooms than what we have in India. So from that perspective, there is scope for capacity addition. But then it also depends on the region. Hotels in South India have reached a certain level of saturation but there is scope for growth in North and East of India. The markets in Bangalore, Hyderabad and all the metros are almost saturated now.
SURESH KUMAR, Chief Executive Officer – Fortune Park Hotels Limited, said: In my opinion, the hotel rates are going to go up, though they will increase marginally. The benchmarking will begin at a higher point.
We wouldn’t see as many launches as we did in 2011 and 2012 because the major punch that came in terms of investment was from the real estate developers. However one a project is started there is a long gestation period. So there will be slow return on the capital invested.
The result of increased supply and intense competition is that The RevPAR of premium hotels will take a big hit. According to Crisil research, premium hotels in Ahmedabad and Chennai will be the worst affected, with an annual decline of over 20 per cent. Hotels in Bengaluru, Hyderabad, NCR, Jaipur and Kochi will also record a significant fall, of 15 per cent annually. By contrast, limited room additions will keep RevPAR stable in Agra and even increase it marginally in Goa. The decline in RevPAR will erode the profitability of premium hotels, as room revenues make up almost two-third of their total revenues. Rising costs will add to the pressure on profitability.
“Operating margins will drop to their decadal lows in 2013-14,” Ms Binaifer Jehani, Director – CRISIL Research. “The margins had previously dropped to 16-17 per cent in 2002-03 and 2003-04, when the 9/11 terror attack and the SARS (Severe acute respiratory syndrome) outbreak had countries issuing travel advisories, sparking a drastic fall in demand. But that fall was temporary, and the margins recovered to their earlier levels of 30-35 per cent. But this time around, the recovery will be slower. A continued oversupply, at least till 2015-16, will maintain the pressure on profitability of premium hotels.”
We are now increasingly seeing institutional players invest in the hospitality space, especially in the budget and mid market space. Investment by such players brings with it a disciplined approach to the process, with any investment based on thorough market research and due diligence, generally ensuring that unfeasible projects are not developed on a whim and that new supply is not added to markets indiscriminately. Such an approach will ensure that any development is purely based on Return On Investment (ROI) instead of Return On Ego (ROE) and also inspire confidence amongst lenders and stakeholders.
While institutional investors are very focused on maximising operational margins, they are just as committed to development costs of the hotels they build.
As part of their drive to reduce input costs, investors are questioning the brand standards dictated by hotel companies and the relevance or requirements for some of them. As the industry matures and hotel investors continue to become more knowledgeable and savvy, the hotel brands can no longer simply mandate such requirements, unless they can prove to owners that the additional costs incurred will lead to greater returns.
The trouble in the Indian skies will continue this year as well but the government’s move to allow foreign investment in Indian airlines may finally help the Indian aviation sector see some light at the end of the tunnel. According to CAPA’s Annual India Aviation Outlook, in 2013 there are signs of a turnaround. The report states that new aircraft orders will be placed in 2013/14 as the market starts to look ahead to the next phase of growth. But cost pressures and a weak policy environment will continue to be a challenge.
“With the commissioning into service of the new terminals at Chennai and Kolkata, and the partial opening of T2 at Mumbai all six Indian metros will have world class airport infrastructure, a dramatic leap forward in the eight years since the modernisation program was announced. But 2013/14 must be the year in which certainty about economic regulation is achieved if there is to be strong investor interest in the upcoming tenders for the Navi Mumbai and Goa greenfield airport projects,” the report added.
However, there’s some bad news for travellers. According to the 2013 Global Corporate Travel Forecast and Hotel Negotiability Index, the airfares in India are set to rise. The report states: The Indian aviation sector will continue to struggle, with most carriers heavily in debt and unproﬁtable. High fuel costs as well as increasing airport charges, which get passed on to passengers, will most likely result in increased air ticket prices. The air fares in India is set to increase by 10% for Mumbai and 9% for Delhi.
Another factor that goes against India is the high cost of air travel within the country on account of very high fuel costs, which today account for 50% or more of the operating cost of airlines. In fact if there was one single factor that we believe can continue to adversely impact hotel occupancies in India it would be the high cost of air travel, which is forcing Indians to stop traveling within India and explore cheaper options outside of the country. Even business travel within India is down as airfares have gone up by nearly 100% in the past 12 months.
BUSINESS TRAVEL COST TO RISE
Travelling might just prove to be more expensive this year if reports are to be believed.
According to a recent survey by American Express’ Global Business Travel Forecast 2013, India is projected to see the greatest fare increases in the region, of up to 8 percent, largely as a result of volatility in that market’s air industry.
Hotel rates in APAC (Asia Pacific), like airfare, are expected to differ widely at both the country and city levels the report states.
If the airrfares mean trouble, the airports don’t give a breather either with massively increased airport charges. IATA has named Delhi International airport as the world’s most expensive airport. The increase in charges are expected to raise the travel costs by 10 to 15 percent according to Industry Forecast 2013 by Advito. The Delhi airport has introduced a direct fee for passengers. Mumbai Airport has also applied to increase its charges significantly.
MORE ON MEETINGS
According to reports, Abu Dhabi Tourism & Culture Authority (TCA Abu Dhabi) is to begin 2013 with a five-city road show taking in key cities in India as it looking forward to build inbound tourism from the Republic, which is now the Emirate’s second largest international hotel guest source market.
The authority will lead a 12-strong industry delegation representing its attractions, hotels and airline sectors in a five-day whistle-stop promotion taking in New Delhi, Ahmedabad, Mumbai, Bangalore and Chennai from January 7-11.
“This is the first time we have included Ahmedabad and this is to leverage the recent launch, by Etihad Airways, of a daily flight from this largest Gujarat city to Abu Dhabi,” said Mubarak Al Nuaimi, International Promotions Manager, TCA Abu Dhabi.
The luxury, multi-award-winning Jumeirah at Etihad Towers meanwhile has Indian MICE business firmly in its sights. “We are focusing in 2013 on the Indian business and MICE segments, and to some degree leisure, because Indian visitors are proving to be people who appreciate luxury hospitality and gourmet experiences,” said Doris Greif, General Manager, Jumeirah at Etihad Towers.
“The Indian market is important to our overall client mix, especially given its relative proximity and propensity to travel. It is hoped that not only will our general business and leisure client base further expand, but that opportunities for MICE.
In a world of smart phones and constant connectivity, adapting and adopting technological innovations is the order of the day. With social media and networking defining the true essence of the times, apps, websites and pages are aplenty.
Not only are hotels investing time and effort to keep their websites up to date, some are going the extra mile and encouraging interactive media sharing as well. With Pinterest, Instagram, Facebook and Twitter rapidly gaining popularity amongst even business travellers, hotels have understood the trend to implement interactive social media as a clever marketing strategy.
With almost 50% of mobile phone users across the globe being smart-phone owners, mltimedia sharing is the best way to not just target, but also attract them. Keeping in mind Ericsson’s prediction about over 50 billion users connected to smart devices by 2020, hoteliers will be doing the smart thing by allowing them to connect from their devices instead of desktops and laptops. An with Pinterest, hotels will have the opportunity to create pinboards and even curate images of services that are impressive in order to better themselves.
Google is also projecting that mobile will overtake PCs as the most common web-access device by 2013.